Rebound in U.S. Consumer Prices Shows Inflation Stabilizing


U.S. CPI Rebounds, Retail Sales Gain 0.4% in April

A rebound in U.S. consumer prices in April signals inflation is stabilizing, supporting the case for Federal Reserve policy makers to raise interest rates, Labor Department figures showed Friday.

Highlights of CPI (April)
  • Consumer-price index increased 0.2% (matching forecast) following 0.3% decline the prior month
  • From a year earlier, prices were up 2.2% (forecast was 2.3%) after a 2.4% gain
  • Excluding food and energy, core prices rose 0.1% from the prior month after falling 0.1%, and were up 1.9% from a year earlier, the least since October 2015

Key Takeaways

Businesses are regaining some pricing power as household spending grows and improving global demand helps to stabilize commodity costs, adding to signs that inflation is on track to meet or possibly exceed the Fed’s goal in coming months. The central bank’s preferred gauge of inflation, a separate figure based on what consumers purchase, exceeded its 2 percent goal in February, though some Fed officials focus on the measure excluding food and energy, which remains below their target.

Economist Views

While core prices were lower than expected, “much of that weakness is likely to be transitory, in our view, particularly in the core services components,” Barclays Plc economist Blerina Uruci said in a research note. “In all, today’s data do not alter our view that the Federal Reserve will tighten policy in June.”

Other Details

  • The increase was driven by shelter, energy, tobacco and food
  • Energy prices rose 1.1 percent from previous month, with rises in gasoline, natural gas and electricity; food costs advanced 0.2 percent, the fourth straight gain
  • The gauges for new and used vehicles both fell; costs of mobile-phone services, medical care, apparel and recreation also declined
  • Shelter costs rose 0.3 percent, with a 0.2 percent increase in owners-equivalent rent, one of the categories designed to track rental prices
  • Prices for medical care dropped 0.2 percent, the most since May 2013, reflecting a record 0.9 percent monthly decline in prescription-drug prices
  • Hourly earnings adjusted for inflation rose 0.4 percent from April 2016, after a 0.3 percent gain, a separate report from the Labor Department showed
(Updates with economist’s comment. An earlier version corrected the monthly rise in core prices in the third bullet.)
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